USD/INR drifts lower ahead of US CPI, FOMC meeting
- Indian Rupee remains firm ahead of the FOMC meeting.
- The Reserve Bank of India (RBI) MPC decided to keep the rate steady at 6.50% at its December meeting.
- Investors will closely monitor the US inflation data ahead of the FOMC interest rate decision.
Indian Rupee (INR) kicks off the new week on a positive note on Monday as traders await the key US event. On Friday, the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to keep the interest rate unchanged at 6.50% while raising its growth forecast for the current fiscal year to 7% from 6.5% earlier. RBI’s Das said easing inflation across all components of retail inflation is one of the reasons behind the MPC’s decision to keep the repo rate unchanged.
RBI’s Das further stated that the near-term picture is clouded by risks to food inflation, which might lead to higher inflation in November and possibly December. This should be monitored for potential second-round effects.
Investors will closely monitor the US inflation data, as measured by Consumer Price Index (CPI). The attention will shift to the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. In the meantime, RBI could support the Indian Rupee at 83.40 as oil companies and others would buy on dips in USD/INR.
Daily Digest Market Movers: The Indian Rupee remains resilient to external shocks amid better macro data and investor inflows
- The Reserve Bank of India (RBI) governor Shaktikanta Das announced the Monetary Policy Committee decided unanimously to keep the policy repo rate unchanged at 6.5% and keep the focus on the withdrawal of accommodation.
- Das highlighted the Indian economy is resilient and has momentum, as reflected in the GDP growth for the second quarter of the ongoing financial year.
- Indian retail inflation is estimated at 5.4% in FY24. RBI also projected retail inflation in Q3 of FY24 at 5.6% and 5.2% in Q4.
- The forecast growth rate for India’s GDP in FY24 is currently set at 7.0%, with growth rates forecast of 6.5% and 6.0% for the third and fourth quarters, respectively.
- India’s foreign exchange reserves increased to $604 billion as of December 1, surpassing the $600 billion mark after a gap of about four months.
- US Nonfarm Payrolls (NFP) rose by 199K from October’s increase of 150K and came in above the market expectation of 180K.
- Unemployment Rate declined to 3.7% from 3.9% in the same period, while Average Hourly Earnings remained steady at 4.0%, in line with the market expectation.
- The preliminary University of Michigan Consumer Sentiment Index for December arrived at 69.4 from 61.3 in the previous reading, the second-highest reading this year.
Technical Analysis: Indian Rupee trades strongly with a slight positive outlook
Indian Rupee trades firmly on the day. The USD/INR pair has traded near the upper boundary of a trading range of 82.80–83.40 since September. According to the daily chart, USD/INR maintains its bullish vibes as it holds above the key 100-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) continues above the 50.0 threshold, bolstering the upward momentum.
That being said, a decisive break above the upper boundary of the trading range of 83.40 could pave the way to the next hurdle at the year-to-date (YTD) high of 83.47, followed by a round figure of 84.00. On the downside, the critical support level is seen at the 83.00 psychological round figure. A break below 83.00 will see a drop to 82.80, representing the confluence of the lower limit of the trading range and a low of September 12. The additional downside to watch is a low of August 11 at 82.60.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.11% | 1.33% | 0.80% | 1.87% | -0.59% | 1.63% | 1.35% | |
| EUR | -1.14% | 0.24% | -0.31% | 0.76% | -1.74% | 0.55% | 0.24% | |
| GBP | -1.37% | -0.23% | -0.54% | 0.53% | -1.95% | 0.31% | 0.01% | |
| CAD | -0.81% | 0.31% | 0.54% | 1.07% | -1.42% | 0.86% | 0.55% | |
| AUD | -1.89% | -0.77% | -0.53% | -1.08% | -2.52% | -0.22% | -0.52% | |
| JPY | 0.57% | 1.72% | 2.09% | 1.41% | 2.47% | 2.25% | 1.93% | |
| NZD | -1.66% | -0.53% | -0.31% | -0.85% | 0.22% | -2.27% | -0.29% | |
| CHF | -1.39% | -0.24% | -0.01% | -0.55% | 0.53% | -1.97% | 0.29% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.